LetterOne claims sanctions on founders pushing capital away from the west

LetterOne, the Russian oligarch-backed investment group, has urged governments to be open to reviewing their sanctions policies to reduce negative economic effects after it revealed a fall in the value in its net assets.

In an annual review of its business, whose portfolio includes UK health food chain Holland & Barrett and a stake in telecommunications group Veon, the group admitted that the sanctions placed on Russian billionaires Mikhail Fridman and Petr Aven continued “to limit our ability to invest in businesses and support jobs”. 

“Very few businesses have had to manage the scope and complexity of challenges that L1 has been faced with since [Vladimir] Putin’s abhorrent war in Ukraine,” said Mervyn Davies, chair of LetterOne (L1), in the report. 

“Despite L1 not being under any sanctions in any jurisdiction, the sanctions placed on two of our shareholders have held the business back unnecessarily, at a cost to economies in the UK, EU and US, and this will continue.”

The London-based LetterOne is not under sanctions after its oligarch founders resigned from the group’s board in 2022. LetterOne froze the shareholdings of the oligarchs and they have no operational involvement in the business. They jointly own less than 50 per cent of the company.

Fridman and Aven set up LetterOne in 2013 with their partners, German Khan and Alexei Kuzmichev, after selling their stakes in oil major TNK-BP to state-run Rosneft.

The four oligarchs’ ambitions to build a business empire in the west were shattered by UK and EU sanctions in the immediate aftermath of Russia’s full-scale invasion of Ukraine. The US followed suit with sanctions against the oligarchs last year.

In 2022, Khan and Kuzmichev sold their stakes in LetterOne and Alfa-Bank, the major lender that is the cornerstone of the oligarchs’ empire in Russia, to Andrei Kosogov, a longtime former partner who is not subject to sanctions.

The Ukraine-born Fridman, who moved to London in 2014, returned to Moscow last year after chafing at the sanctions against him. 

Last month, he was pictured welcoming guests at a party thrown by Alfa-Bank during the Kremlin’s flagship economic conference in St Petersburg. 

Aven, who is a Latvian citizen, left the UK and moved to Latvia in 2022. 

In April, the EU’s General Court annulled the inclusion of Fridman and Aven on the bloc’s sanctions list from 2022-23 in a surprising victory for the pair. 

It found that there was insufficient evidence the two oligarchs backed the Kremlin’s war against Ukraine.

Fridman and Aven, who remain under sanctions under a separate EU legal designation, are challenging those in ongoing legal proceedings. 

They agreed last year to sell their stakes in Alfa-Bank, which are held by a Cypriot company, for $2.3bn to Kosogov as part of their effort to remove the sanctions.

The deal has yet to receive regulatory approval from Cyprus’s finance ministry. The lack of approval has helped maintain the justification for the EU sanctions against them. Any decision to lift sanctions will require a decision by EU member states. 

LetterOne said that it agreed with commentary that the current approach to sanctions “has opened ‘a Pandora’s box of unintended consequences’, in cases harming western economies and pushing capital away from the west while failing to halt Putin’s immoral aggression”. 

These sanctions led to “significant fall” in assets under management in 2022 for LetterOne. Net assets dropped further from $18.7bn in 2022 to $18.1bn in 2023 — but this was mainly blamed on a changed valuation applied to its energy business.

The group had $7bn in “liquidity” in cash and other assets that can be invested, according to the annual report.

Jonathan Muir, LetterOne chief executive, said the investment group had stabilised its business in 2023, and he was “optimistic that our portfolio is in a strong position”. 

Last year, LetterOne appointed former Conservative MP Sir Brandon Lewis to lead a board advisory council to “navigate the complex geopolitics that we must now accept as business as usual”. The group plans to expand both the council and its board in 2024. 

Fridman did not reply for a request for comment and Aven declined to comment.